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Multi-manager View

After some emergency repairs, the developed world’s economic engine is running once more, although it is still far from firing on all cylinders and policymakers may yet have to break out the jump leads again.

Fragile though the recovery is, the economic backdrop is still significantly more positive than only a few months ago, when a fresh banking crisis centred on the eurozone looked likely.

For multi-managers, the watchwords are caution and vigilance. No one wants to miss out on upside as investor sentiment improves but real threats remain.

The green shoots seem strongest in the US, where employment figures have shown improvement, consumer confidence is returning and leading indicators are more encouraging than they were 12 months ago. Our view is that the US has made real progress in moving its economy closer to a position of sustainable recovery.

While we are keeping a sharp eye on economic and political events, the US represents an overweight position for us, accounting for five of the top 10 holdings in our global equity portfolio, the T Bailey growth fund, and about 30 per cent of its overall asset allocation.

We were early converts to emerging markets and maintain our confidence in China’s long-term growth prospects. Engineering a soft landing from a property bubble will be no simple task for Beijing but the long-term story remains intact.

The challenge is how to access the growth prospects of the emerging nations in a portfolio, given the volatility and other issues associated with investing in these markets directly. Our strategy is to blend managers that have strong research capabilities in the region with those that access the major companies of the developed world that are supplying and expanding into the emerging nations.

Europe is seen by some as presenting major opportunities but we remain cautious. The injection of liquidity through the long-term refinancing operation has eased the worst fears about a fresh banking crisis. However, it remains to be seen how much will ultimately find its way to companies to finance the growth Europe so badly needs.

We also remain under-weight on the UK, which shares many of the traits of its continental counterparts. Anaemic growth and the potential for sterling weakness limit the appeal for investors but, on a more positive note, the FTSE does provide opportunities to access robust international businesses.

In short, prudent investors will remain watchful and nimble. It is too early to know whether more emergency work will be needed but the engine is running and the developed world is making cautious progress along the road to recovery.

Elliot Farley is co-manager of the T Bailey growth fund

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